One of the items I noted in my various reports on accounting for intangibles (see Reporting Intangibles and Intangible Asset Monetization) is the slight difference in how intangibles are treated in different accounting systems. Specifically, I noted the difference in accounting for R&D between the US Generally Accepted Accounting Principles (GAAP) overseen by the Financial Accounting Standards Board (FASB) and the International Financial Reporting Standards (IFRS ), which includes International Accounting Standards (IAS), developed by the International Accounting Standards Board (IASB). I wondered if these differences had much of an impact on the bottom line.
Well, the answer, according to a report by Citigroup (as reported last August in Accountancy Age) is yes, but. The study looked at a set of multinational companies which file under both systems and need to reconcile their accounts. According to the report:
The study found that 82% had higher net income under IFRS, while book value was lower for about 70% of the sample. Overall returns on equity were also much higher on average under IFRS, according to Citigroup.
. . .
Profits under IFRS were on average 23% higher for the sampled companies with the median value levelling out at 6%.
But, the study found a number of reasons for the differences:
The main sticking points occurred in the treatment of tax (60), pensions (55), goodwill and intangible assets (53), and financial instruments (40).So, treatment of intangibles and goodwill were only a quarter of the differences. And it is not clear whether this was due to treatment of intangibles (specifically expensing versus amortization of R&D) or due to the larger issue of goodwill.
Bottom line: while "material" differences exist between the accounting standards, intangibles don't seem to be the biggest problem.
All of this may be moot, however, as FASB and IASB are working toward greater harmonization. Some are legitimately concerned about this, based on a fear of weakening US financial regulations) (see Push for New Accounting Standards Gains Speed - washingtonpost.com).
But I think the conclusion of the Citigroup report makes the point:
In general, the banking giant believed that there was not much to choose from between the two standards: 'Trying to make investment decisions based on a superior knowledge of the GAAP differences may add some value, but for many of these differences it is difficult to choose a clearly superior accounting treatment.'
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